Thu, June 30, 2011
Business > Economy > China revises individual income tax law

Proposed tax threshold changes generate record amount of feedback

2011-05-31 10:21:33 GMT2011-05-31 18:21:33(Beijing Time)  Xinhua English

BEIJING, May 31 (Xinhua) -- China's top legislature has received more than 230,000 public submissions on a draft amendment to increase the minimum threshold for personal income tax from 2,000 yuan (306 U.S. dollars) per month to 3,000 yuan.

The Standing Committee of the National People's Congress (NPC) published the draft amendment to the Personal Income Tax (PIT) Law on its official website, www.npc.gov.cn, on April 25, calling for public submissions. Tuesday is the deadline for submissions.

Feedback submitted online broke the previous record set by the draft Labor Contract Law in 2006.

During a bimonthly session that concluded late April, the NPC Standing Committee examined the draft amendment to the PIT law for the first time.

The draft amendment, featuring a minimum tax threshold hike, is seen as one of the latest efforts to improve the living standards of the country's middle- and low-income earners and to achieve fairer income distribution.

Jin Dongsheng, deputy director of the Tax Science Institute of the State Administration of Taxation, said the 3,000-yuan threshold accords with the current residential consumption situation, which also considered the inflation factor.

However, Prof. Li Daokui of Tsinghua University suggested that different regions use different minimum tax thresholds, such as 5,000 yuan and 4,000 yuan in more prosperous areas.

But Liu Jianwen, president of China Fiscal and Tax Law Association, said the threshold should not be too high or else "the PIT's coverage would become too narrow to raise public awareness on tax payment," and the decline in tax revenue was "not conducive to increasing official spending on public services."

Statistics show that most countries' major source of tax revenue is high-income earners, but in China, 65 percent of tax revenue is provided by the wage-earning class.

Prof Liu Yi of Peking University's School of Economics said the Law amendments mainly target the wage-earning class' PIT and fail to cover the stock dividends and other unearned income often attributed to the wealthy.

"High-income people's "grey income" is hard to monitor and tax," said Liu, calling for strengthened taxation management for the rich.

The country currently uses a nine-bracket progressive rating system, which applies a minimum tax rate of 5 percent to those who earn between 2,000 to 2,500 yuan, and a maximum rate of 45 percent for those whose earnings exceed 102,000 yuan a month.

However, according to the draft, the minimum tax rate of 5 percent will be applied to those whose monthly salaries range from 3,000 to 4,500 yuan and the peak rate to those who make more than 82,000 a month.

More than 200 million of the country's working class will stand to benefit from lifting the minimum PIT threshold. If the personal income tax threshold is lifted, only about 12 percent of the working class will have to pay taxes, down from the current 28 percent, according to officials.

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